Hanson Pays Extra for Funding in U.S.
LONDON -- Hanson PLC is paying significantly higher interest on a $4 billion loan in the United States than on a parallel bank funding in Europe, partly because the U.S. deal has been classified as involving a highly leveraged transaction.
The U.S. loan, being coordinated by Chemical Bank, carries a margin of 75 basis points over the benchmark London interbank offered rate, according to bankers. The borrower is Hanson Industries, the conglomerate's U.S. unit.
In contrast, a $5.1 billion loan being sought by the parent in Europe carries a margin of only 37.5 basis points over Libor.
HLT Designation Involved
Bankers attribute this chiefly to the U.S. loan's HLT designation, as the funding is associated with an acquisition and is classified among transactions considered to carry higher risk.
It will partially refinance Hanson's $2.6 billion facility arranged last year, which helped bankroll the acquisition of Peabody Holding Co. That loan was originally priced at 50 basis points over Libor and was also designated as an HLT.
Acquisition-hungry Hanson is reorganizing much of its bank debt as a result of its $600 million takeover of Beazer Group PLC, a British building materials conglomerate.
Spreads Have Changed
The $5.1 billion loan being arranged in Europe will refinance existing Hanson debt, much of which stems from its acquisition of Consolidated Gold Fields.
The original spreads were between 15 and 25 basis points over Libor, the London Interbank Offered Rate.
The parent company has some $12 billion of cash on its balance sheet, providing plenty of protection to its bankers. The loans to Hanson's U.S. subsidiary, however, are nonrecourse to the parent company, which is another reason why the rate on the U.S. loans is higher.
Many banks with relationships to Hanson are being asked to participate in both loans, providing an average weighted return of about 60 basis points over Libor.
The European financing is being arranged by National Westminster Bank PLC, Barclays Bank PLC and Credit Suisse. Nearly 50% of the original 43 banks have indicated acceptance for the new terms.
Hanson PLC vice-chairman Martin Taylor said in an interview that he would not comment "on speculation in the market" over factors to explain different pricing on the two loan financings.
